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KHC

PITTSBURGH & CHICAGO--(BUSINESS WIRE)--The Kraft Heinz Company (NASDAQ: KHC) (“Kraft Heinz” or the “Company”)
today reported third quarter 2018 financial results that reflected solid
gains from Organic Net Sales growth and lower taxes versus the prior
year period that were offset by investments in strategic capabilities,
as well as higher overhead and input costs.

“We believe that our Q3 results are strong evidence that our commercial
investments are working, with solid top line performance in the
quarter,” said Kraft Heinz CEO Bernardo Hees. “This reflects our strong
pipeline of marketing, new product and whitespace initiatives now in the
marketplace, backed by investments in capabilities we have been making
for brand and category advantage. While a number of one-off factors - as
well as our desire to insure customer service - held back profit in the
quarter, we remain confident that we are well-positioned to deliver
sustainable, profitable growth going forward.”

Q3 2018 Financial Summary

For the Three Months Ended

Year-over-year Change

Acquisitions

September 29,

September 30,

and

2018

2017

Actual

Currency

Divestitures

Organic

(in millions, except per share data)

Net sales

$

6,378

$

6,280

1.6

%

(1.6) pp

0.6 pp

2.6

%

Operating income

1,070

1,538

(30.4

)%

Net income/(loss) attributable to common shareholders

630

944

(33.3

)%

Diluted EPS

$

0.51

$

0.77

(33.8

)%

Adjusted EBITDA(1)

1,616

1,888

(14.4

)%

(0.9) pp

Adjusted EPS(1)

$

0.78

$

0.83

(6.0

)%

Net sales were $6.4 billion, up 1.6 percent versus the year-ago period,
including a negative 1.6 percentage point impact from currency and a net
0.6 percentage point benefit from acquisitions and divestitures. Organic
Net Sales increased 2.6 percent versus the year-ago period. Pricing was
down 0.9 percentage points, driven by increased promotional support and
key commodity(2)-related pricing actions in the United States
that more than offset increased pricing in Rest of World markets,
primarily from highly inflationary environments. Volume/mix increased
3.5 percentage points, with growth in every segment and led by
consumption growth in a majority of categories in the United States.

Net income attributable to common shareholders decreased to $630 million
and diluted EPS decreased to $0.51, primarily reflecting non-cash
impairment charges and higher costs in the current period, partially
offset by lower taxes. Adjusted EBITDA decreased 14.4 percent versus the
year-ago period to $1.6 billion, including a negative 0.9 percentage
point impact from currency. Excluding the impact of currency, the
decline in Adjusted EBITDA was primarily driven by investments in
strategic capabilities, higher overhead costs and input costs that more
than offset Organic Net Sales growth. Adjusted EPS decreased 6.0 percent
to $0.78, as lower taxes on adjusted earnings in the current period were
more than offset by lower Adjusted EBITDA.

Q3 2018 Business Segment Highlights

United States

For the Three Months Ended

Year-over-year Change

Acquisitions

September 29,

September 30,

and

2018

2017

Actual

Currency

Divestitures

Organic

(in millions)

Net sales

$

4,431

$

4,351

1.8

%

0.0 pp

0.0 pp

1.8

%

Segment Adjusted EBITDA

1,201

1,433

(16.2

)%

0.0 pp

United States net sales were $4.4 billion, up 1.8 percent versus the
year-ago period. Pricing decreased 2.0 percentage points, driven by
increased in-store activity, particularly in natural cheese and
ready-to-drink beverages, as well as commodity-driven pricing actions in
bacon. This was partially offset by favorable timing of promotional
activity versus the prior year in Lunchables. Volume/mix
increased 3.8 percentage points, driven by consumption-led growth across
a majority of categories, including beverages, nuts, bacon, refrigerated
meal combinations, and cream cheese.

United States Segment Adjusted EBITDA decreased 16.2 percent versus the
year-ago period to $1.2 billion, as gains from volume/mix growth and
favorable key commodity costs versus the prior year period were more
than offset by a combination of lower pricing, non-key commodity cost
inflation including logistics, investments in capability building, as
well as higher overhead costs versus the year-ago period.

Canada

For the Three Months Ended

Year-over-year Change

Acquisitions

September 29,

September 30,

and

2018

2017

Actual

Currency

Divestitures

Organic

(in millions)

Net sales

$

525

$

556

(5.6

)%

(4.2) pp

0.0 pp

(1.4

)%

Segment Adjusted EBITDA

144

161

(10.3

)%

(4.0) pp

Canada net sales were $525 million, 5.6 percent lower than the year-ago
period, reflecting a negative 4.2 percentage point impact from currency
and a 1.4 percent decline in Organic Net Sales. Pricing was 1.5
percentage points lower, as favorable pricing in foodservice was more
than offset by stepped-up promotional expenses versus the year-ago
period. Volume/mix was essentially flat, as gains in coffee and macaroni
& cheese were mostly offset by select product discontinuations.

EMEA net sales were $629 million, down 3.3 percent versus the year-ago
period, including a negative 1.9 percentage point impact from currency
and a negative 2.0 percentage point impact from the divestiture of a
joint venture in South Africa. Organic Net Sales increased 0.6 percent
versus the year-ago period. Pricing was down 0.7 percentage points as
favorable pricing in the UK, Italy and the Netherlands was more than
offset by lower prices in the Middle East and Africa. Volume/mix
increased 1.3 percentage points, driven by foodservice gains across all
regions and growth in condiments and sauces, including contributions
from the addition of Kraft products in certain regions. This growth was
partially offset by lower shipments in soups and infant nutrition
products.

EMEA Segment Adjusted EBITDA decreased 11.7 percent versus the year-ago
period to $161 million, including a negative 1.3 percentage point impact
from currency. Excluding the impact of currency, Segment Adjusted EBITDA
declined primarily due to higher supply chain costs in the Middle East
and Africa and increased go-to-market investments.

Rest of World(3)(4)

For the Three Months Ended

Year-over-year Change

Acquisitions

September 29,

September 30,

and

2018

2017

Actual

Currency

Divestitures

Organic

(in millions)

Net sales

$

793

$

722

9.9

%

(9.4) pp

6.8 pp

12.5

%

Segment Adjusted EBITDA

148

140

5.9

%

(7.1) pp

Rest of World net sales were $793 million, increasing 9.9 percent versus
the year-ago period, including a negative 9.4 percentage point impact
from currency and a 6.8 percentage point contribution from the Cerebos
acquisition. Organic Net Sales increased 12.5 percent versus the
year-ago period. Pricing increased 6.2 percentage points, primarily
driven by highly inflationary environments in certain markets within
Latin America. Volume/mix increased 6.3 percentage points, driven by
growth in condiments and sauces in Latin America that more than offset
lower shipments of canned seafood and cordials in Indonesia.

Rest of World Segment Adjusted EBITDA increased 5.9 percent versus the
year-ago period to $148 million, despite a negative 7.1 percentage point
impact from currency, as gains from Organic Net Sales growth was
partially offset by higher input costs in local currency and investments
to support whitespace initiatives.

End Notes

(1)

Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted
EBITDA and Adjusted EPS are non-GAAP financial measures. Please see
discussion of non-GAAP financial measures and the reconciliations at
the end of this press release for more information.

(2)

The Company's key commodities in the United States and Canada are
dairy, meat, coffee and nuts.

(3)

In the first quarter of the Company's fiscal year 2018, the Company
reorganized certain of its international businesses to better align
the Company's global geographies. As a result, Middle East and
Africa businesses were moved from the historical Asia Pacific,
Middle East, and Africa (“AMEA”) operating segment into the
historical Europe reportable segment, forming the new Europe, Middle
East, and Africa (“EMEA”) reportable segment. The remaining
businesses from the AMEA operating segment became the Asia Pacific
(“APAC”) operating segment. This change has been reflected in all
historical periods presented.

(4)

Rest of World comprises two operating segments: Latin America and
APAC.

Webcast and Conference Call Information

A webcast of The Kraft Heinz Company's third quarter 2018 earnings
conference call will be available at ir.kraftheinzcompany.com. The call
begins today at 5:00 p.m. Eastern Time.

ABOUT THE KRAFT HEINZ COMPANY

The Kraft Heinz Company (NASDAQ: KHC) is the fifth-largest food and
beverage company in the world. A globally trusted producer of delicious
foods, The Kraft Heinz Company provides high quality, great taste and
nutrition for all eating occasions whether at home, in restaurants, or
on the go. The Company’s iconic brands include Kraft, Heinz,
ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Maxwell
House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero,
Smart Ones and Velveeta. The Kraft Heinz Company is dedicated
to the sustainable health of our people, our planet and our Company. For
more information, visit www.kraftheinzcompany.com.

Forward-Looking Statements

This press release contains a number of forward-looking statements.
Words such as "enhance," "encouraged," "believe," "position,"
"anticipate," "reflect," "invest," "see," "make," "expect," "deliver,"
"drive," "improve," "assess," "evaluate," "grow," "remain," "will," and
variations of such words and similar future or conditional expressions
are intended to identify forward-looking statements. Examples of
forward-looking statements include, but are not limited to, statements
regarding the Company's plans, segment changes, cost savings, taxes,
expectations, investments, innovations, opportunities, capabilities,
execution, initiatives, pipeline, and growth. These forward-looking
statements are not guarantees of future performance and are subject to a
number of risks and uncertainties, many of which are difficult to
predict and beyond the Company's control.

Important factors that may affect the Company's business and operations
and that may cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, operating in
a highly competitive industry; changes in the retail landscape or the
loss of key retail customers; the Company’s ability to maintain, extend
and expand its reputation and brand image; the impacts of the Company’s
international operations; the Company’s ability to leverage its brand
value to compete against retailer brands and other economy brands; the
Company’s ability to predict, identify and interpret changes in consumer
preferences and demand; the Company’s ability to drive revenue growth in
its key product categories, increase its market share, or add products;
an impairment of the carrying value of goodwill or other
indefinite-lived intangible assets; volatility in commodity, energy and
other input costs; changes in the Company’s management team or other key
personnel; the Company’s ability to realize the anticipated benefits
from its cost savings initiatives; changes in relationships with
significant customers and suppliers; the execution of the Company’s
international expansion strategy; tax law changes or interpretations;
legal claims or other regulatory enforcement actions; product recalls or
product liability claims; unanticipated business disruptions; the
Company’s ability to complete or realize the benefits from potential and
completed acquisitions, alliances, divestitures or joint ventures;
economic and political conditions in the United States and in various
other nations in which we operate; volatility of capital markets and
other macroeconomic factors; increased pension, labor and people-related
expenses; volatility in the market value of all or a portion of the
derivatives we use; exchange rate fluctuations; risks associated with
information technology and systems, including service interruptions,
misappropriation of data or breaches of security; the Company’s ability
to protect intellectual property rights; impacts of natural events in
the locations in which we or the Company’s customers, suppliers or
regulators operate; the Company’s indebtedness and ability to pay such
indebtedness; the Company’s ownership structure; the impact of future
sales of the Company's common stock in the public markets; the Company’s
ability to continue to pay a regular dividend; restatements of the
Company’s consolidated financial statements; and other factors. For
additional information on these and other factors that could affect the
Company's forward-looking statements, see the Company's risk factors, as
they may be amended from time to time, set forth in its filings with the
Securities and Exchange Commission. The Company disclaims and does not
undertake any obligation to update or revise any forward-looking
statement in this press release, except as required by applicable law or
regulation.

Non-GAAP Financial Measures

To supplement the financial information, the Company has presented
Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA,
and Adjusted EPS, which are considered non-GAAP financial measures. The
non-GAAP financial measures provided should be viewed in addition to,
and not as an alternative for, results prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) that are presented in this press release. The non-GAAP
financial measures presented may differ from similarly titled non-GAAP
financial measures presented by other companies, and other companies may
not define these non-GAAP financial measures in the same way. These
measures are not substitutes for their comparable GAAP financial
measures, such as net sales, net income/(loss), diluted earnings per
share, or other measures prescribed by GAAP, and there are limitations
to using non-GAAP financial measures.

Management uses these non-GAAP financial measures to assist in comparing
the Company's performance on a consistent basis for purposes of business
decision making by removing the impact of certain items that management
believes do not directly reflect the Company's underlying operations.
Management believes that presenting the Company's non-GAAP financial
measures is useful to investors because it (i) provides investors with
meaningful supplemental information regarding financial performance by
excluding certain items, (ii) permits investors to view performance
using the same tools that management uses to budget, make operating and
strategic decisions, and evaluate historical performance, and (iii)
otherwise provides supplemental information that may be useful to
investors in evaluating the Company's results. The Company believes that
the presentation of these non-GAAP financial measures, when considered
together with the corresponding GAAP financial measures and the
reconciliations to those measures, provides investors with additional
understanding of the factors and trends affecting the Company's business
than could be obtained absent these disclosures.

Organic Net Sales is defined as net sales excluding, when they occur,
the impact of currency, acquisitions and divestitures, and a 53rd week
of shipments. The Company calculates the impact of currency on net sales
by holding exchange rates constant at the previous year's exchange rate,
with the exception of Venezuela, for which the Company calculates the
previous year's results using the current year's exchange rate. Organic
Net Sales is a tool that can assist management and investors in
comparing the Company's performance on a consistent basis by removing
the impact of certain items that management believes do not directly
reflect the Company's underlying operations.

Adjusted EBITDA is defined as net income/(loss) from continuing
operations before interest expense, other expense/(income), net,
provision for/(benefit from) income taxes, and depreciation and
amortization (excluding integration and restructuring expenses); in
addition to these adjustments, the Company excludes, when they occur,
the impacts of integration and restructuring expenses, deal costs,
unrealized losses/(gains) on commodity hedges, impairment losses,
losses/(gains) on the sale of a business, nonmonetary currency
devaluation (e.g., remeasurement gains and losses), and equity award
compensation expense (excluding integration and restructuring expenses).
The Company also presents Adjusted EBITDA on a constant currency basis.
The Company calculates the impact of currency on Adjusted EBITDA by
holding exchange rates constant at the previous year's exchange rate,
with the exception of Venezuela, for which it calculates the previous
year's results using the current year's exchange rate. Adjusted EBITDA
and Constant Currency Adjusted EBITDA are tools that can assist
management and investors in comparing the Company's performance on a
consistent basis by removing the impact of certain items that management
believes do not directly reflect the Company's underlying operations.

Adjusted EPS is defined as diluted earnings per share excluding, when
they occur, the impacts of integration and restructuring expenses, deal
costs, unrealized losses/(gains) on commodity hedges, impairment losses,
losses/(gains) on the sale of a business, nonmonetary currency
devaluation (e.g., remeasurement gains and losses), and U.S. Tax Reform
discrete income tax expense/(benefit), and including when they occur,
adjustments to reflect preferred stock dividend payments on an accrual
basis. The Company believes Adjusted EPS provides important
comparability of underlying operating results, allowing investors and
management to assess operating performance on a consistent basis.

See the attached schedules for supplemental financial data, which
includes the financial information, the non-GAAP financial measures and
corresponding reconciliations to the comparable GAAP financial measures
for the relevant periods.

Schedule 1

The Kraft Heinz Company

Condensed Consolidated Statements of Income

(in millions, except per share data)

(Unaudited)

For the Three Months Ended

For the Nine Months Ended

September 29,

September 30,

September 29,

September 30,

2018

2017

2018

2017

Net sales

$

6,378

$

6,280

$

19,368

$

19,241

Cost of products sold(a)

4,271

4,077

12,651

12,406

Gross profit

2,107

2,203

6,717

6,835

Selling, general and administrative expenses(b)

1,037

665

2,837

2,220

Operating income

1,070

1,538

3,880

4,615

Interest expense

327

306

962

926

Other expense/(income), net(c)

(71

)

(127

)

(196

)

(510

)

Income/(loss) before income taxes

814

1,359

3,114

4,199

Provision for/(benefit from) income taxes

186

416

738

1,205

Net income/(loss)

628

943

2,376

2,994

Net income/(loss) attributable to noncontrolling interest

(2

)

(1

)

(3

)

(2

)

Net income/(loss) attributable to common shareholders

$

630

$

944

$

2,379

$

2,996

Basic shares outstanding

1,219

1,218

1,219

1,218

Diluted shares outstanding

1,226

1,228

1,227

1,229

Per share data applicable to common shareholders:

Basic earnings/(loss) per share

$

0.52

$

0.78

$

1.95

$

2.46

Diluted earnings/(loss) per share

0.51

0.77

1.94

2.44

(a)

Integration and restructuring expenses recorded in cost of products
sold were $18 million for the quarter ended September 29, 2018 ($17
million after-tax), $85 million for the quarter ended September 30,
2017 ($62 million after-tax), $175 million for the nine months ended
September 29, 2018 ($147 million after-tax), and $264 million for
the nine months ended September 30, 2017 ($187 million after-tax).

(b)

Integration and restructuring expenses recorded in selling, general
and administrative expenses (“SG&A”) were $14 million for the
quarter ended September 29, 2018 ($13 million after-tax), $14
million for the quarter ended September 30, 2017 ($12 million
after-tax), $40 million for the nine months ended September 29, 2018
($35 million after-tax), and $124 million for the nine months ended
September 30, 2017 ($88 million after-tax).

(c)

Integration and restructuring expenses/(income) recorded in other
expense/(income), net, were income of $1 million for the quarter
ended September 29, 2018 ($0 million after-tax), income of $4
million for the quarter ended September 30, 2017 ($3 million
after-tax), expenses of $63 million for the nine months ended
September 29, 2018 ($53 million after-tax), and income of $151
million for the nine months ended September 30, 2017 ($105 million
after-tax).

Income tax expense associated with these items is based on
applicable jurisdictional tax rates and deductibility assessments of
individual items.

(b)

Integration and restructuring included the following gross
expenses/(income):

•

Expenses recorded in cost of products sold were $18 million for the
three months and $175 million for the nine months ended September
29, 2018 and $85 million for the three months and $264 million for
the nine months ended September 30, 2017.

•

Expenses recorded in SG&A were $14 million for the three months and
$40 million for the nine months ended September 29, 2018 and $14
million for the three months and $124 million for the nine months
ended September 30, 2017.

•

Expenses/(income) recorded in other expense/(income), net, were
income of $1 million for the three months and expenses of $63
million for the nine months ended September 29, 2018 and income of
$4 million for the three months and $151 million for the nine months
ended September 30, 2017.

(c)

Deal costs included the following gross expenses:

•

Expenses recorded in cost of products sold were $4 million for the
nine months ended September 29, 2018 (there were no such expenses
for the three months ended September 29, 2018 or the three or nine
months ended September 30, 2017).

•

Expenses recorded in SG&A were $3 million for the three months and
$15 million for the nine months ended September 29, 2018 (there were
no such expenses for the three or nine months ended September 30,
2017).

(d)

Unrealized losses/(gains) on commodity hedges were recorded in cost
of products sold, including gross expenses of $6 million for the
three months and $11 million for the nine months ended September 29,
2018 and gross income of $5 million for the three months and gross
expenses of $24 million for the nine months ended September 30, 2017.

(e)

Impairment losses were recorded in SG&A, including $234 million for
the three months and $499 million for the nine months ended
September 29, 2018 and $1 million for the three months and $49
million for the nine months ended September 30, 2017.

(f)

Losses/(gains) on sale of business were recorded in SG&A, including
gross expenses of $15 million for the nine months ended September
29, 2018 (there were no such expenses for the three months ended
September 29, 2018 or the three or nine months ended September 30,
2017).

(g)

Nonmonetary currency devaluation was recorded in other
expense/(income), net, including gross expenses of $64 million for
the three months and $131 million for the nine months ended
September 29, 2018 and $3 million for the three months and $36
million for the nine months ended September 30, 2017.

(h)

U.S. Tax Reform discrete income tax expense/(benefit) included
expenses of $55 million for the three months and $79 million for the
nine months ended September 29, 2018 (there were no such expenses
for the three or nine months ended September 30, 2017). Expenses for
the three and nine months ended September 29, 2018 primarily related
to the revaluation of our deferred tax balances due to changes in
state tax laws following U.S. Tax Reform. These expenses were
partially offset by benefits related to the release of U.S. tax
reserves and changes in estimates of certain 2017 U.S. income and
deductions. Additionally, expenses for the nine months ended were
partially offset by U.S. Tax Reform measurement period adjustments.